Antitrust lawyers could ask that the union be blocked unless cable lines are opened

NEW YORK (CNNfn) - Federal antitrust lawyers are threatening to recommend America Online Inc.'s proposed $128.4 billion acquisition of Time Warner Inc. be blocked unless the companies agree to mandates opening their high-speed cable lines to competing companies, according to a source close to the negotiations.

U.S. Federal Trade Commission lawyers, leery of the distribution power a combined AOL Time Warner would carry, have indicated they are prepared to recommend against the blockbuster union -- first announced in January -- unless the two companies agree to provide competitors with access to its high-speed cable lines, according to the source.

But the source said negotiations are still in their early stages and the threat, first reported in Monday's Washington Post, is simply part of the process.

"This is not a new issue," the source said. "Nothing's really happened here."

Officials of Time Warner, the parent company of CNNfn, and AOL have repeatedly made a pledge for open access publicly, most recently in late July, when both AOL Chairman Steve Case and Time Warner Chairman Gerald Levin appeared before the Federal Communications Commission.

"From day one, AOL and Time Warner have been fully committed to open access," said AOL spokesperson Kathy McKiernan late Monday. "Our continuing conversations with the regulatory agencies reviewing our merger are proceeding well and we are on track to close in the fall."

In July, Levin, who is slated to become CEO of the combined company, said his company was proceeding with negotiations that would allow other Internet service providers (ISPs) to use its cable system as a conduit for their offerings, but declined to give a timeframe for reaching such agreements.

Time Warner (TWX: Research, Estimates), the No. 2 U.S. cable company, unveiled the first such deal just weeks later, giving Juno Online Services Inc. access to its expansive broadband network, which includes 12.6 million customers worldwide and another 11.5 million homes passed that are potential high-speed access customers.

However, consumer advocates and such competitors as Walt Disney Co. (DIS: Research, Estimates), fearful that AOL Time Warner will give preference to its own content following their merger, are still advocating for a legally binding mandate that would require Time Warner to open its line to any ISP that asks -- language that would surely make the companies balk.

Negotiations between federal regulators and company officials are ongoing and no decision by the FTC or any other agency is expected soon. However, FTC staff lawyers believe they have enough evidence to convince a federal judge that without such open access concessions, the merger would stand in violation of federal antitrust laws, the Post reported.

AOL (AOL: Research, Estimates) shares closed down $1.19 to $57.75 on Friday and remain more than 20 percent below their closing price the day before the merger was first announced. Time Warner shares lost $1.12 Friday to close at $84.38.